Banks and building societies have withdrawn a raft of mortgage deals after the government’s mini-budget triggered a rout in UK financial markets.
Virgin Money and Skipton Building Society have temporarily withdrawn all mortgage deals for new customers, while Halifax, the UK’s largest lender, is removing fee-paying mortgages. The lenders blamed the move on “market conditions” and “significant changes in the cost of funding”, Sky News reported.
The pound crashed to a record low against the US dollar on Monday, amid growing concern among investors about the government’s ability to repay the growing national debt. After the Bank of England warned that it would “not hesitate” to hike interest rates in order to curb inflation, the cost of borrowing is now predicted to soar from the current level of 2.25% to almost 6% by next spring.
Mortgage brokers told the i news site that would-be borrowers were racing to try to lock in cheaper deals before rates rise further. Chris Sykes of Private Finance said: “It’s incredibly complex to organise a mortgage at the moment. You spend time researching a product then five minutes later you get an email saying it has been pulled.”
How to secure the best remortgage deal
“Remortgaging requires effort on your part – even more so since the cost-of-living crisis began,” said Kit Sproson on MoneySavingExpert.com. “But being proactive could generate a lot of savings in the long run.”
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Start the remortgage process between three and six months before your fixed rate expires, he advised, to avoid automatically reverting to your lender’s Standard Variable Rate (SVR), which is immediately subject to Bank of England rate rises.
The first, important step is to “polish your credit report and learn how else to bolster your mortgage credentials”. Then start looking for the best available rate, based on the maximum amount that you can borrow. This is based on a multiple of your salary and monthly outgoings, your property’s up-to-date value and your loan-to-value ratio.
If you’re rejected after applying, “don’t automatically apply again with a different lender”, Sproson continued. “Too many applications will mess up your credit score.” Instead, have another look at your credit report, to see if there is anything you might have missed. If your report is “still looking good”, the lender “may have had its own reason for turning you down”, so “it’s worth asking” in order to identify other stumbling blocks.
MoneySavingExpert.com founder Martin Lewis has issued a comprehensive 62-page guide with further tips on remortgaging that he says could help homeowners to save hundreds of pounds a month.
“Remember, it’s not about the best deal out there – it’s about the best deal for you,” Lewis said.
What if you can’t afford your mortgage payments?
Jim Akin of credit bureau Experian has set out a series of options for homeowners who cannot afford their next mortgage payment. He stressed the need to “take action quickly to minimise potential fees, penalties and damage to your credit”.
The first step is reaching out to your lender. They may agree to loan forbearance – reducing or suspending mortgage payments for an agreed period, usually up to 12 months.
For borrowers with a good credit rating, another option is refinancing – taking out a new mortgage with a lower monthly payment that will make your house payments more affordable. However, this process “can take weeks or even months, and you will likely have to pay (or finance) origination fees associated with the new loan”, Akin warned.
Alternatively, your lender may agree to mortgage modification, when the terms of your loan are permanently adjusted in order to make monthly payments more manageable.
If after exploring these options you are still unable to afford your repayments, renting out or selling your home may help to “contain the damage” and leave you “in the best position to start over”, Akin concluded.
The Citizens Advice Bureau also has tips on what to do if you cannot afford your mortgage repayments, and recommends “getting independent financial advice” before making any mortgage decisions.